What Biden Means to You(r Wallet)

TL;DR: Biden’s proposed tax plan includes higher taxes for top earners/investors. Higher corporate taxes may be indirectly passed on to the labor force. A Republican senate means passing all this will be hard for Biden.

With Biden declared as the president-elect in this recent election, let’s look at what his plans are tax-wise.

Income Tax: The top tax bracket would be raised from 37% to 39.6%. A payroll tax of 12.4% would be applied to all income over $400k. 99% of Americans would not be affected by these tax changes directly. It is noteworthy Biden doesn’t mention any wealth tax that other Democrats have called for.

Capital Gains: Long-term capital gains on those earning more than $1million would be 39.6% instead of the current rate of 20%. There is some concern that this would cause some fund managers to sell stock to lock down that 20% rate before the new tax rate kicks in. This has some potential of pushing stocks down somewhat. Biden is also calling for the Step-up basis adjustment to be eliminated.

Corporate Taxes: This would be raised from 21% to 28%. While this isn’t supposed to directly affect individuals, practically speaking (first order) this cost will be partially passed on to consumers (more expensive products/services) and workers (lower wages, less jobs). However, because the economy is complicated, it’s hard to say what exactly the effect of this tax increase would be.

Estate Taxes: Biden wants to take down the Estate Tax Exemption amount to $3.5 million from 11.58%. He also wants to take the top tax rate from 40% to 45%.

Housing: A first-time homebuyer credit of up to $15000 (similar to what was seen in 2008-2010) is being pushed for. This would help low/middle income families to buy a home. Biden is also planning on strengthening renter’s rights, and creating a renter’s tax credit that’s aimed to keep rental/utility costs to 30% of income.

Real Estate: We could say bye-bye to the 1031 exchange.

Through all these, Biden is trying to raise more tax revenue to pay for enhanced government services in other areas. However, if the Republicans keep control of the senate (at the time of this writing, markets have it at 75% chance), it’ll be hard for Biden to enact on all of these plans. We’ll have to see how those two Georgia senate races do in January!

How would all these changes affect you?

Happy Tax Planning,

TheJKW